Momentum building for the low-risk BES: Business Expansion Schemes are attracting a new breed of investor

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The Independent Online
THE TWO Business Expansion Schemes which gave investors a guaranteed return after just six months rather than the usual five-year wait for a BES to mature are likely to be followed by similar ventures.

The Bessa Blue Chip BES, set up to buy properties repossessed by Barclays Bank's centralised mortgage arm, raised pounds 15m and was over-subscribed by pounds 10m. A second version may be in the offing.

But Charles Fry of Johnson Fry, sponsor of the TSB-backed venture which raised pounds 50m in eight days, predicts that new schemes will be put together regardless of tax considerations, such as the carry-back deadline on 6 October or the year end in April. 'It's not time sensitive. At last the public have realised how good these things are.'

Mr Fry is talking to some banks about possible schemes. He is also in discussion with indemnity insurers, who have to pay out when repossessed properties are sold at a loss. But some of these insurers are reluctant to crystallise their losses in large lumps.

Anthony Yadgaroff of the Allenbridge Group said: 'These schemes have whetted the appetite and it's bringing in a lot of people who've never invested in BES schemes.'

The House the Homeless of London (Greenwich) scheme raised pounds 5m in 12 working days and is having to return cheques to disappointed subscribers.

Meanwhile, a number of other BES schemes are still open for those keen to beat the deadline for carrying back tax relief on up to half the investment to the 1991/2 tax year.

The Tobermory Malt Scotch Whisky BES - The Spirit of 1992 PLC - will appeal to some investors through its option of repayment in kind.

Distillation will begin within two weeks of the pounds 250,000 minimum subscription being raised. Tobermory Distillers, on the Isle of Mull, has agreed to produce the spirit for the BES company at pounds 1 per litre, giving a total cost of pounds 1.70 per litre.

The spirit will be sold either as malt whisky or exchanged with products from other Scotch distillers to produce a blended whisky. People will be investing in the making of the spirit rather than whisky that has already been produced.

But the scheme holds little appeal for the BES experts, who are now looking for low-risk deals. The Allenbridge Group will not even analyse it because it does not offer either a contracted exit or an assured property tenancy.

The Harleyscreen scheme - an investment based on the three-hour testing laboratory for HIV - is similarly dismissed because it cannot promise a minimum return.

The contracted-exit BES issues are regarded as the most attractive in the market. The Accumulus BES is backed by the Standard Chartered Bank, which guarantees a repayment after five years of pounds 1.25 for each pounds 1 gross investment.

For a higher-rate taxpayer, this equates to an annual return of 14.6 per cent, according to the Allenbridge Group.

The Cavendish Wates BES offers a similar return and is backed by Midland Bank. The Airways II Assured Growth BES is also categorised as a contracted-exit scheme. However, the guarantor is not a bank but the Airways Housing Society. The Allenbridge Group comments: 'Investors may conclude there is better security in the market for the same return.'

Among the traditional assured tenancy schemes, Unchained Growth II promises a repayment in five years' time of pounds 1.40 for every pounds 1 invested now in property using two guarantors: Laing Homes and managing agent Graham Harvey. Despite its promises, Unchained Growth does not classify itself as a contracted-exit scheme as the promised pounds 1.40 return relates only to amounts which are ultimately invested in property. The prospectus does not say, however, how much will go on expenses. The extent of the final return is therefore uncertain.

Analysts believe that the BES schemes will go out with a flourish. They lose their privileged tax status in December 1993. Until then, taxpayers get full relief up to pounds 40,000 on all investments into qualifying schemes.

----------------------------------------------------------------- ----------------------------------------------------------------- ASSURED TENANCY Name Sponsor Closing date Besres IX Phoenix Sun Life 2 Oct 1992 Capital Prime Properties Johnson Fry 16 Oct 1992 Kerrington Maxi Growth None 25 Sep 1992 Paragon Neill Clerk Indefinite Pathfinder II Johnson Fry 12 Oct 1992 Profit Builder None 5 Oct 1992 Reversionary Gains IV Neill Clerk 20 Oct 1992 Reversionary Recovery Terrace Hill Trust 5 Oct 1992 Serah III Neill Clerk/Terrace Hill 5 Oct 1992 Short Leasehold Terrace Hill Capital Indefinite Sovereign Reversion Johnson Fry 10 Oct 1992 Unchained Growth Neill Clerk 20 Oct 1992 CONTRACTED EXIT Name Sponsor Exit via Return Accumulus Terrace Hill Cap Metfield/StanChart 14.6 Airways II MMI Airways Housing 15.2 Cavendish Wates Smith Williamson Wates/Midland 14.6 ----------------------------------------------------------------- Source: Allenbridge Group 071 409-1111 -----------------------------------------------------------------